Foreign currency deposits increase to Sh834 billion

The Central Bank of Kenya building in Nairobi. PHOTO | DENNIS ONSONGO | NMG

The value of foreign currency deposits in local banks stood at an all-time high of Sh834.5 billion in April, boosted by the shilling’s depreciation against the dollar and cautionary accumulation by buyers.

The deposits rose by Sh23.4 billion month-on-month, the latest data from the Central Bank of Kenya (CBK) shows a third straight monthly increase that has coincided with the weakening of the shilling to an all-time low of 117.29 units to the dollar from 113.14 at the beginning of the year.

The higher hard currency deposits ought to ideally offer easier access to forex by importers, but the last two months have seen them complain of difficulties accessing the same from banks.

Experts say the issue of dollar availability largely points to an inefficiency in the interbank forex market, which boils down to demand beating supply.

Those holding dollars are therefore unlikely to ease their positions out of concern over whether they will replenish their holdings to finance foreign currency obligations.

“The 2.9 percent month-on-month jump could be attributed to foreign exchange valuation, with the dollar strengthening against the shilling by one percent on average in April. Also, the balance has been an organic growth in foreign currency deposits by locals against the backdrop of risk-off sentiment not just locally, but globally,” said Churchill Ogutu, an economist at IC Asset Managers (Mauritius).

The shilling’s depreciation to record lows has come on the back of a fast-rising import bill that has outstripped earnings from exports, diaspora remittances and the tourism sector.

In the first quarter, imports rose by 17 percent to Sh591.6 billion from Sh507.5 billion last year, while exports were up by nine percent to Sh207.7 billion from Sh191.4 billion.

Fuel, food and industrial goods have been the biggest contributors to the jump in import costs, reflecting the higher global prices of crude oil, wheat, and cooking oil largely linked to the Russia-Ukraine conflict.

Supply chain constraints as global economies contend with pent-up demand have also raised shipping costs, fuelling higher inflation.

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